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Non-bank lending to small businesses increasing

6 November, 2013

According to the latest reports available, non-bank lending to small businesses is the highest as of 2008. As a rising number of businesses are turning to alternate options, this is only going to increase. Several alternative sources like peer to peer lenders and invoice financing is finding more takers among the small business owners. While the governments’ new schemes for property buyers like Help to Buy has brought some respite to the people, small business owners still feel neglected by the government and mainstream lenders.

In such a situation, alternative lender options have become the lifeblood of small businesses. Some of the more popular alternate options are-

1. Peer to peer lending

Peer to peer lending is also known as social lending or lend to save. In this model, several individuals will come together and share money among themselves. Here, borrowers are able to find funding from people known as peers without going through any financial intermediary. This usually takes place online without any collateral or security.

2. Invoice financing

Invoice financing, also known as invoice discounting is a very short term borrowing. It is usually taken out as a temporary solution for immediate needs. In this, businesses use their sales receivable ledger as collateral to obtain a certain percentage, usually around 80%, of the amount receivable as loan. The biggest benefit of this is that the business has to pay interest only on the amount, it receives. In addition, there are very little procedures for obtaining this loan making it accessible for any one.